Leveraging Indexed Insurance Products for Tax Planning

Your Presenter: Michael D. Reese, CFP®, CLU, ChFC

Centennial Wealth Advisory, LLC 818 Red Dr., Suite 100, Traverse City, MI

P: 231.995.9575 / F: 231.995.9673 W: www.cen-wealth.com

Who Is Michael Reese?Michael Reese, CFP®, CLU, ChFC is the founder and principal of Centennial Wealth Advisory based in Traverse City, MI. He is cited in numerous industry publications for his expertise on retirement planning, including “US News & Worlds Reports”. In additional to his financial advisory practice, Michael also assists other financial advisors throughout the country as the featured educator at Advisor’s Excel’s “IRA llege” in Topeka, KS. At the “IRA College”, Mr. Reese teaches tax planning strategies that he uses to significantly reduce the taxation on his client’s portfolios. Thanks to these tax planning strategies, Michael has been able to increase his income from $100,000 to over $1 million in just 4 years, all in a town of less than 50,000 people.

The Tax Problems

1. Taxable interest on reinvested accounts

2. Taxable interest on income producing accounts

3. The “Big Mama” – the IRA Tax Bomb

Tax Problem #1

Taxable interest on reinvested accounts

Where Does It Come From?

Personal accounts

Trust accounts

Bank accounts

Brokerage accounts

Dividend Paying Stock

Bonds and bond funds

Etc.

How Does It Affect Investors?

You can see its’ affect on lines 8 and 9 of the tax return

If retired, it will also impact the tax paid on Social Security Income

And don’t forget about muni-bond income!!!

How Do Index-Linked Insurance Programs Help?

Tax-deferral on both annuities and properly designed life insurance

Using these tools will wipe the earnings right off the tax return

Let’s take a look at an example

Joe & Jane – BEFORE

Joe & Jane – BEFORE

Joe & Jane – AFTER STEP 1

Joe & Jane – AFTER STEP 1

Result

Before PlanningTax owed: $8,164

After Step 1 PlanningTax owed: $2,841

Taxes Saved: $5,323 each year!!!

Tax Problem #2

Taxable interest on income producing

accounts

What Can Be Done?

If someone is receiving income, can they really do anything about their taxes other than utilizing muni-bonds?

Joe & Jane – BEFORE

Joe & Jane – BEFORE

Joe & Jane - AFTER

Joe & Jane - AFTER

Result

Before PlanningTax owed: $8,164

After PlanningTax owed: $3,951

Taxes Saved:$4,213 each year!!!

How Did We Do That?

Answer: Annuity Laddering

3 to 4 Annuities:5-Year SPIA5x5 Indexed Annuity10-Year FIA with an Income Rider

Tax Problem #3

The “Big Mama”

The IRA Tax Bomb

Age Beginning 6.00% RMD Required Actual Less Tax Net Less Spending Net Ending

Year Beg End Balance Earnings Divisor Distribution Distribution 25.00% Distribution (Net of Tax) Reinvested Balance

2011 64 65 $500,000 $30,000 0.0 $0 $0 $0 $0 $0 $0 $530,0002012 65 66 $530,000 $31,800 0.0 $0 $0 $0 $0 $0 $0 $561,8002013 66 67 $561,800 $33,708 0.0 $0 $0 $0 $0 $0 $0 $595,5082014 67 68 $595,508 $35,730 0.0 $0 $0 $0 $0 $0 $0 $631,2382015 68 69 $631,238 $37,874 0.0 $0 $0 $0 $0 $0 $0 $669,1132016 69 70 $669,113 $40,147 27.4 $24,420 $24,420 $6,105 $18,315 $0 $18,315 $684,8392017 70 71 $684,839 $41,090 26.5 $25,843 $25,843 $6,461 $19,382 $0 $19,382 $700,0872018 71 72 $700,087 $42,005 25.6 $27,347 $27,347 $6,837 $20,510 $0 $20,510 $714,7452019 72 73 $714,745 $42,885 24.7 $28,937 $28,937 $7,234 $21,703 $0 $21,703 $728,6922020 73 74 $728,692 $43,722 23.8 $30,617 $30,617 $7,654 $22,963 $0 $22,963 $741,7972021 74 75 $741,797 $44,508 22.9 $32,393 $32,393 $8,098 $24,295 $0 $24,295 $753,9122022 75 76 $753,912 $45,235 22.0 $34,269 $34,269 $8,567 $25,702 $0 $25,702 $764,8782023 76 77 $764,878 $45,893 21.2 $36,079 $36,079 $9,020 $27,059 $0 $27,059 $774,6912024 77 78 $774,691 $46,481 20.3 $38,162 $38,162 $9,541 $28,622 $0 $28,622 $783,0102025 78 79 $783,010 $46,981 19.5 $40,154 $40,154 $10,039 $30,116 $0 $30,116 $789,8372026 79 80 $789,837 $47,390 18.7 $42,237 $42,237 $10,559 $31,678 $0 $31,678 $794,9902027 80 81 $794,990 $47,699 17.9 $44,413 $44,413 $11,103 $33,310 $0 $33,310 $798,2762028 81 82 $798,276 $47,897 17.1 $46,683 $46,683 $11,671 $35,012 $0 $35,012 $799,4902029 82 83 $799,490 $47,969 16.3 $49,048 $49,048 $12,262 $36,786 $0 $36,786 $798,4112030 83 84 $798,411 $47,905 15.5 $51,510 $51,510 $12,878 $38,633 $0 $38,633 $794,8052031 84 85 $794,805 $47,688 14.8 $53,703 $53,703 $13,426 $40,277 $0 $40,277 $788,7902032 85 86 $788,790 $47,327 14.1 $55,943 $55,943 $13,986 $41,957 $0 $41,957 $780,1752033 86 87 $780,175 $46,811 13.4 $58,222 $58,222 $14,556 $43,667 $0 $43,667 $768,7642034 87 88 $768,764 $46,126 12.7 $60,533 $60,533 $15,133 $45,399 $0 $45,399 $754,3572035 88 89 $754,357 $45,261 12.0 $62,863 $62,863 $15,716 $47,147 $0 $47,147 $736,7552036 89 90 $736,755 $44,205 11.4 $64,628 $64,628 $16,157 $48,471 $0 $48,471 $716,333

Totals: $908,005 $908,005 $227,001 $681,003 $0 $681,003

Hypothetical only - no specific investment illustrated.

Doing The MathA $500,000 IRA can

easily lead to…

$908,000 of RMDs and…

$716,000 left over

Which equals> $1.6M taxable!!!

One Neat Solution…

Convert an IRA to a Roth IRA.

Use the bonus on an index-linked annuity to pay part of the tax.

Let’s take a look at an example.

Example

Convert $100,000 from IRA to Roth IRA

Assuming a 25% tax bracket, tax due will be $25,000

If the new annuity has a 10% bonus, the account will earn $10,000 right up front

$25,000 to the IRSless $10,000 from the insurance company

= $15,000 net cost

Net cost for Roth Conversion – 15%

Your Presenter: Michael D. Reese, CFP®, CLU, ChFC

Additional questions may be directed to: mike@cen-wealth.com